Financial markets weakened on Monday as driven by the likely impasse of the US deficit cut. as well as worries over the economic outlook in Japan. Sentiment was not helped by the change in regime in Spain. European bourses traded lower, following the decline in Asian shares with the MSCI Asia Pacific losing -1%. Commodities sank with the front-month contract for WTI crude oil slipping to the lowest level more than a week and Brent crude approaching a 3-week low. Gold traded with a soft tone but 1700 remained on hold.
Although the US has released somehow encouraging economic data in recent weak, the market has inevitably returned the focus on the country's huge deficit. It's expected that the congressional super committee will announce that it has failed to reach agreement on budget cut worth of $1.2 trillion starting in January 2013. The failure would again raise credit agencies' worries that the US policymakers are unable to compromise on tough decisions. Another wave of rate-cut speculations would be envisaged. In the less likely scenario that a last-minute deal is reached, implementation would still be problematic given the Presidential election will take place in November 2012 and the impossibility for the Congress to bind a future Congress to any budget.
In Spain, Mariano Rajoy's People's Party, gaining 186 out of 350 seats, won the biggest parliamentary majority in a Spanish election in almost 30 years. It's expected the new government will accelerate fiscal austerity to save the country's economy. Rajoy said he hoped Spain wouldn't need a bailout before his commencement as the new Prime Minister in mid December. He has also pledged to cut the budget deficit and regain the AAA credit rating.
Japan's trade deficit widened to 0.46 trillion yen in October from 0.1 trillion a month ago. Exports declined -3.7% y/y in October as strong Japanese yen has been hurting shipment. Car markers Honda Motor and Toyota Motor slumped more than -2% after the report. Separately, Japan's 'all industry activity index' contracted -0.9% m/m in September, worsening from an upwardly revised -0.3% in the prior month.
Commitments of Traders
Speculators were mixed towards the energy complex, being bullish on crude oil and heating but bearish over gasoline and natural, in the week ended November 15. Net length for crude oil futures climbed +6365 contracts, to 173 407. Net length for heating oil added +1 881 contracts to 23 158 while that for gasoline slipped -2 518 contracts to 556 146. Net short for natural gas futures rose +17 598 contracts to 178 611.
Speculators were bullish on precious metals. Net length for gold futures surged +3 507contracts to 159 214 while that for silver climbed +1 507 contracts to 14 447. For PGMs, net length for platinum added +147 contracts to 21 749 while that for palladium increased +371 contracts to 7476.